Correlation Between Aeorema Communications and Fevertree Drinks

Can any of the company-specific risk be diversified away by investing in both Aeorema Communications and Fevertree Drinks at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Aeorema Communications and Fevertree Drinks into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Aeorema Communications Plc and Fevertree Drinks Plc, you can compare the effects of market volatilities on Aeorema Communications and Fevertree Drinks and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Aeorema Communications with a short position of Fevertree Drinks. Check out your portfolio center. Please also check ongoing floating volatility patterns of Aeorema Communications and Fevertree Drinks.

Diversification Opportunities for Aeorema Communications and Fevertree Drinks

-0.44

Correlation Coefficient

Aeorema Communications  Fevertree Drinks

Very good diversification

The 3 months correlation between Aeorema and Fevertree is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding Aeorema Communications Plc and Fevertree Drinks Plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fevertree Drinks Plc and Aeorema Communications is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Aeorema Communications Plc are associated (or correlated) with Fevertree Drinks. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fevertree Drinks Plc has no effect on the direction of Aeorema Communications i.e., Aeorema Communications and Fevertree Drinks go up and down completely randomly.

Pair Corralation between Aeorema Communications and Fevertree Drinks

Assuming the 90 days trading horizon Aeorema Communications Plc is expected to under-perform the Fevertree Drinks. But the stock apears to be less risky and, when comparing its historical volatility, Aeorema Communications Plc is 2.35 times less risky than Fevertree Drinks. The stock trades about -0.2 of its potential returns per unit of risk. The Fevertree Drinks Plc is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  66,650  in Fevertree Drinks Plc on December 30, 2024 and sell it today you would earn a total of  17,450  from holding Fevertree Drinks Plc or generate 26.18% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Aeorema Communications Plc  vs.  Fevertree Drinks Plc

Aeorema Communications

Risk-Adjusted Performance

Very Weak

Over the last 90 days Aeorema Communications Plc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's technical and fundamental indicators remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Fevertree Drinks Plc

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Fevertree Drinks Plc are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Fevertree Drinks unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Aeorema Communications and Fevertree Drinks

The main advantage of trading using opposite Aeorema Communications and Fevertree Drinks positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Aeorema Communications position performs unexpectedly, Fevertree Drinks can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Fevertree Drinks will offset losses from the drop in Fevertree Drinks' long position.

The idea behind Aeorema Communications Plc and Fevertree Drinks Plc pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Content Syndication module to quickly integrate customizable finance content to your own investment portal.